Elsevier

Journal of Banking & Finance

Volume 80, July 2017, Pages 119-134
Journal of Banking & Finance

Does a manager's gender matter when accessing credit? Evidence from European data

https://doi.org/10.1016/j.jbankfin.2017.04.009Get rights and content

Abstract

Firms can be credit constrained either because a loan has been denied by the lender or because they decide not to apply for such a loan due to expected rejection. Using a large sample of European small and medium enterprises, we investigate the relationship between gender and credit constraints. Although no evidence is found that financial institutions are biased against female managers, female-run firms are less likely to file a loan application, as they anticipate being rejected. As a consequence, firms managed by women obtain less bank financing.

Introduction

When Eliza Lucas Pinkney took over the management of a plantation from her father in 1738 at 16 years of age, she was not aware she would eventually be listed among the first and most legendary female entrepreneurs. Indeed, her success in introducing the cultivation of the indigo plant in South Carolina, which was in demand for its dye in the growing textile market, granted her a place in history (Mueller, 2012). Stories like hers substantiate the important role women can play in business and consequently the importance of reducing constraining barriers in order to give them the opportunity to fully utilize their managerial skills. Thus, it comes as no surprise that governments all around the world have progressively adopted regulations limiting potential gender inequalities, such as equal pay and equal opportunity legislation or quotas to promote women's political representation (Blau and Kahn, 2001, Bush, 2011). However, despite these regulatory efforts and numerous success stories, women still struggle to reach the higher echelons of power and are a minority in national legislatures and corporate boards of directors (Bush, 2011, Grosvold, 2011). Furthermore, they are confronted with glass ceilings in their career progression and a gender pay gap that seems to persist globally (Arulampalam et al., 2007, Hausmann et al., 2008). In fact, attitudes towards these issues vary across different countries depending on their cultural and economic heritage (Alesina et al., 2013).

Earlier studies have investigated whether gender-related prejudice exists in the credit market but failed to reach a consensus. Research that relies on US data claims that, after controlling for a range of relevant factors, women who operate small businesses do not face discrimination (Blanchflower et al., 2003, Cavalluzzo and Cavalluzzo, 1998, Cavalluzzo et al., 2002). The denial rates, however, seem to show a significant discrepancy across different races, with African-Americans being particularly disadvantaged (Cavalluzzo and Wolken, 2005). Data from Trinidad and Tobago used by Storey (2004) corroborates the conclusion that female-owned businesses are not hindered in the credit market. On the other end of the spectrum, Muravyev et al., (2009), who use data from European and Asian countries, find evidence consistent with discrimination of female entrepreneurs by financial institutions. Even more surprisingly, Raturi and Swamy (1999) report that in Zimbabwe the probability of receiving a business loan conditional on applying is ceteris paribus lower for men.

Our work endeavors to contribute to the debate on potential gender bias by assessing whether firms led by female managers are constrained in accessing credit. We rely on a large survey of small and medium enterprises (SMEs) assessing their access to finance in the euro area, which was conducted by the European Central Bank (SAFE dataset). To the best of our knowledge, this data has not yet been employed to investigate gender-related aspects of credit constraints. The database we utilize is unique in that it provides information on whether firms have been provided with credit by banks and also identifies ‘discouraged borrowers’, defined as those who would like to get a loan, but decide not to apply due to the fact that they anticipate rejection. To the best of our knowledge, there is only one prior study that explicitly modeled discouraged borrowers (Cavalluzzo et al., 2002). Their study used the US National Survey of Small Business Finances and concluded that application avoidance does not differ significantly by gender.

Our results confirm that financial institutions are not biased against women managers when considering the loan applications of their companies, as the likelihood of being successful is independent of gender. This holds true regardless of the concentration of the banking industry in a given country. Apparently banks allocate funds according to the creditworthiness of a firm and the increased use of figures-based credit scoring and credit rating tools may have contributed to constraining gender discrimination. More interestingly, female-run firms tend to apply less often, as they seem to be less confident of a positive outcome. This result regarding discouraged borrowers is at variance with those of Cavalluzzo et al. (2002), who examined the behavior of US entrepreneurs in the 1990s. Our findings have tangible implications for female managers, banks in general and their marketing strategies in particular. They are also subject to the caveat that, due to the limitations of our dataset, we are able to construct only very basic controls for credit risk.

The paper is organized as follows. The next section considers different viewpoints on credit access and discrimination. Against this background, we develop a number of testable hypotheses in Section 3. Section 4 provides details on the dataset used, methodology and variable construction. The following section engages in a discussion of the summary statistics. Subsequently, we proceed to report the regression results, interpret our findings and consider a battery of robustness checks. The paper closes with concluding remarks and recommendations.

Section snippets

Credit access and gender

SMEs are often constrained in accessing supplementary equity from their existing owners, who usually invest a substantial part of their wealth in the venture from its very establishment (Avery et al., 1998). Even if SMEs can turn to alternative providers of equity, such as business angels or venture capitalists, new shareholders typically face big agency problems linked to the opaqueness that characterizes SMEs (Landström, 1992). In addition, entrepreneurs do not like the implementation of

Hypotheses

Our analysis is based broadly on the framework suggested by Cole (2008) and Cressy (2012). The first step a firm takes is to verify whether it needs finance and, if this is indeed the case, a decision on whether to apply for a loan will have to be made. Management may seek alternative sources of finance (e.g. leasing, trade credit, etc.), or may be discouraged from applying, anticipating rejection by the lender. If the firm decides to submit a loan application, it will either have its needs

Data

Our research relies mainly on the Survey of Access to Finance of Enterprise (SAFE) conducted on behalf of the European Commission and the European Central Bank. It collects information about access to finance by enterprises within the European Union. The SAFE survey has been run on a given set of questions every 6 months since 2009 and systematically covers 13 euro area countries (Austria, Belgium, France, Finland, Germany, Greece, Netherlands, Ireland, Italy, Luxemburg, Malta, Portugal and

Descriptive statistics

The dataset we use contains 41,973 complete original observations from 13 countries collected across seven rounds of data collection between second semester 2009 and second semester 2012. The summary statistics are reported in Table 2.

In our sample, 12.35% of firms are run by female managers and 87.65% by males. The majority are either micro or small and only 7% are classified as large. Three quarters of the firms in the sample are independent and a similar proportion is older than 9 years. All

Loan application

Table 3 presents logit regressions where the dependent variable indicates whether the enterprise has applied for a bank loan. Three different specifications are reported. The first regression incorporates all controls and semester dummies, the second extends the modeling by allowing for country dummies, while the last one is a parsimonious specification excluding regressors that are both consistently insignificant and inconsequential for the R-squared. The estimations are based on 41,973

Robustness checks and further considerations

In what follows, we examine whether our results are robust to bank concentration, selection bias as well as firm's quality.

Conclusions

Our research investigates the role of gender in accessing credit in Europe by exploiting a very recent dataset produced by the European Central Bank. The results indicate that female-led firms are less likely to apply for a loan compared to enterprises run by men. This happens because women managers are reluctant to file a loan application since they anticipate rejection on the part of the lender. At the same time, we find no evidence that, in the process of arriving at their final lending

Acknowledgments

We are grateful to Dr. Yacine Belghitar from Cranfield University and Daniela Arzu from Ca’ Foscari University of Venice for their invaluable support and suggestions. We would also like to thank two anonymous reviewers for the constructive feedback provided.

References (59)

  • R. Elsas

    Empirical determinants of relationship lending

    J. Financ. Intermed.

    (2005)
  • R. Elsas et al.

    Is relationship lending special? Evidence from credit data in Germany

    J. Bank. Financ.

    (1998)
  • A. Fredriksson et al.

    Bank–SMEs relationships and banks’ risk-adjusted profitability

    J. Bank. Financ.

    (2014)
  • L. Guiso

    High-tech firms and credit rationing

    J. Econ. Behav. Organ.

    (1998)
  • E. Lehmann et al.

    Do lending relationships matter? Evidence from bank survey data in Germany

    J. Econ. Behav. Organ.

    (2001)
  • A. Muravyev et al.

    Entrepreneurs’ gender and financial constraints: evidence from international data

    J. Comp. Econ.

    (2009)
  • A. Alesina et al.

    On the origins of gender roles: women and the plough

    Q. J. Econ.

    (2013)
  • E.I. Altman

    Financial ratio discriminant analysis and the prediction of corporate bankruptcy

    J. Finance

    (1968)
  • K.J. Arrow

    The theory of discrimination.

  • W. Arulampalam et al.

    Is there a glass ceiling over Europe? Exploring the gender pay gap across the wage distribution

    Ind. Labor Relat. Rev.

    (2007)
  • B.M. Barber et al.

    Boys will be boys: gender, overconfidence, and common stock investment

    Q. J. Econ.

    (2001)
  • G.S. Becker

    The Economics of Discrimination

    (1971)
  • A.N. Berger et al.

    Small business credit availability and relationship lending: the importance of bank organisational structure

    Econ. J.

    (2002)
  • A.N. Berger et al.

    Relationship lending and the lines of credit in small firm finance

    J. Bus.

    (1995)
  • D.G. Blanchflower et al.

    Discrimination in the small-business credit market

    Rev. Econ. Stat.

    (2003)
  • Blau, F.D., Kahn, L.M., 2001. Understanding international differences in the gender pay gap. NEBR Working Paper...
  • S.S. Bush

    International politics and the spread of quotas for women in legislatures

    Int. Organ.

    (2011)
  • S. Carbó-Valverde et al.

    Bank market power and SME financing constraints

    Rev. Financ.

    (2009)
  • K.S. Cavalluzzo et al.

    Market structure and discrimination: the case of small business

    J. Money Credit Bank.

    (1998)
  • Cited by (87)

    • Does gender matter in financing SMEs in green industry?

      2024, Research in International Business and Finance
    View all citing articles on Scopus
    View full text